It was the biggest one-day gain for the Dow since early September, and came after stocks ended November on a sour note, with all three major gauges marking declines for the month.

Stocks opened sharply higher Wednesday as investors cheered a batch of upbeat economic reports, including a strong gain in private-sector payrolls and better-than-expected auto sales.

The rally gained momentum after economists at Goldman Sachs (GS, Fortune 500) raised their forecast for U.S. growth next year to 2.7% from 1.9%. The Federal Reserve's latest snapshot of economic conditions showed the nation's gradual recovery continued in October and November.

"There's a growing sense the economy isn't doing as badly as was priced in three months ago," said Brian Gendreau, market strategist at Financial Network. "All it took was mixed news to price out the double-dip recession, now we're getting genuinely good news."

The improved outlook for U.S. growth temporarily overshadowed concerns about the debt problems facing some European economies. Those jitters were further eased by comments from the head of the European Central Bank, which raised speculation that the ECB is prepared to take additional steps to aid the European economy.

Meanwhile, investors also welcomed a robust reading on manufacturing activity in China, which helped lift shares of major U.S. multinationals, as well as companies in the industrial and materials sectors.

It marked the biggest increase in three years and overshadowed an earlier report on planned job cuts in November from outplacement firm Challenger, Gray & Christmas.

Separately, the Institute of Supply Management's index of manufacturing activity edged down slightly in November to 56.6 from 56.9 the month before. Any reading above 50 signals expansion in the sector.

A government report showed that construction spending rose 0.7% in October, beating analysts' expectations of a 0.5% decrease.

The Federal Reserve's Beige Book, a snapshot of economic conditions across the central bank's 12 districts, showed that growth continued to improve in most U.S. regions from early October to mid-November.

The advance in Europe came after comments from ECB chairman Jean-Claude Trichet raised bets that the central bank could announce plans to buying more assets, a strategy known as quantitative easing, after a policy meeting Thursday.

"Trichet referred to bond purchases as 'ongoing,' which raises questions over whether the ECB will unleash its own version of quantitative easing," Ashraf Laidi, chief market strategist at CMC Markets, said in a note to clients.

If it does decide to buy assets, the ECB would be following in the footsteps of the Fed, which pledged last month to buy another $600 billion worth of Treasury bonds.

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